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AC rules out 'colossal failure' of government stake for aid; bailout debate thread

AC rules out 'colossal failure' of government stake for aid; bailout debate thread

Old Apr 13, 2021, 8:05 am
  #106  
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Originally Posted by bid.shader
Thanks. Currently those 9% bonds are trading at a spread of about 530bps over Canadas, which is why I was surprised to see you quote the 10+% financing cost on secured debt.
So, about 5.8% yield at the moment? That's a nice gain for anyone who bought those last year.

It's really hard to know what new secured financing would cost though. I don't know the value of the collateral pool that secures those notes and how much excess there may be; it would be interesting to see how much the value of the gate slots, in particular, has gone down due to COVID. I'm not sure they could sell any more notes against that pool and get something close to that rate, or whether it's tapped out. And while AC used to provide regular updates on how much of the fleet was unencumbered, they stopped doing that last year. So I don't know whether they still have a bunch of planes they can put up for 1st lien financings, or whether they're going in to 2nd or 3rd liens against those, or a 3rd lien against the collateral that secures those 9% notes.

I think overall the package has been received OK. Stock trading down about $1 but well above deal price.
I had been holding the stock for a few weeks thinking it would get a bump when a bailout was announced, but sadly that's not the case
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Old Apr 13, 2021, 8:10 am
  #107  
 
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I had been holding the stock for a few weeks thinking it would get a bump when a bailout was announced, but sadly that's not the case
Yeah but the sector overall is down about 4% today on the J&J vaccine news, so really for the market to digest this kind of an aid package and have the stock trade in line with the sector seems good on the day. Really think we need to wait for actual concrete changes in travel restrictions both within Canada (Atlantic Bubble) and international along with things getting under control on new infection rates across the country before your thesis can play out - tough to have too much optimism in travel when Canada is now seemingly surpassing the U.S. in new infection rates per capita. You're probably a victim of some bad luck right now and just need to wait it out.
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Old Apr 13, 2021, 8:48 am
  #108  
 
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When does service to affected communities need to be restored?
And how much frequency needs to be restored?
Does restoring 1X weekly service compared to 2X daily prepanicdemic count?

https://www.routesonline.com/news/29...hange-for-aid/

The top condition cited by Canadian deputy prime minister and minister of finance Chrystia Freeland for Air Canada gaining access to up to $5.9 billion in liquidity is that “regional communities retain air connections to the rest of Canada through the restart of service at airports temporarily suspended by Air Canada.”
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Old Apr 13, 2021, 9:58 am
  #109  
 
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I was not a fan of government ownership of GM Canada, and I am very concerned about government ownership of AC.
How much influence will the government have going forward? I am not talking about a board seat. If AC wants to cancel or cut back flights to a city, will the government force them to keep money-losing routes in place? This is unacceptable.

I do believe the government needed to get involved as this was their doing. They are the ones that restricted travel, and should be compensating companies for these decisions. However, I am disappointed Air Canada agreed to a government equity stake. I am considering moving my business to Westjet if their agreement does not include an equity stake.

As a shareholder, I am happy the shares have not tanked as I suspected they would in my earlier post. However, I am considering selling my shares. I don't believe the government can keep their nose out of their operations.

Last edited by tcook052; Apr 13, 2021 at 10:03 am Reason: Off topic political
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Old Apr 13, 2021, 12:14 pm
  #110  
 
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Originally Posted by AC7E7
I was not a fan of government ownership of GM Canada, and I am very concerned about government ownership of AC.
How much influence will the government have going forward? I am not talking about a board seat. If AC wants to cancel or cut back flights to a city, will the government force them to keep money-losing routes in place? This is unacceptable.

I do believe the government needed to get involved as this was their doing. They are the ones that restricted travel, and should be compensating companies for these decisions. However, I am disappointed Air Canada agreed to a government equity stake. I am considering moving my business to Westjet if their agreement does not include an equity stake.

As a shareholder, I am happy the shares have not tanked as I suspected they would in my earlier post. However, I am considering selling my shares. I don't believe the government can keep their nose out of their operations.
As a shareholder, it's in your best interest to continue flying with Air Canada, no?
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Old Apr 13, 2021, 12:36 pm
  #111  
 
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Originally Posted by AC7E7
I was not a fan of government ownership of GM Canada, and I am very concerned about government ownership of AC.
How much influence will the government have going forward? I am not talking about a board seat. If AC wants to cancel or cut back flights to a city, will the government force them to keep money-losing routes in place? This is unacceptable.

I do believe the government needed to get involved as this was their doing. They are the ones that restricted travel, and should be compensating companies for these decisions. However, I am disappointed Air Canada agreed to a government equity stake. I am considering moving my business to Westjet if their agreement does not include an equity stake.

As a shareholder, I am happy the shares have not tanked as I suspected they would in my earlier post. However, I am considering selling my shares. I don't believe the government can keep their nose out of their operations.
You can think of things as 1% loan or a 10% loan, but at some point its real dollars per day. Flying to an unprofitable place is also real dollars per day.

Its a perfectly reasonable framework for the Government to say "We will provide low rate loans if you implement some public service". It would also be perfectly reasonable for a Government to say "we will directly subsidize some service for cash", which is only a hair away from "we will compensate you for a service you can't provide because we limited your existence for 18 months". Devil is in the details, yes, but I see these on a spectrum, not as jarring distinctions.

I'm sure the loan agreement list specific routes, frequencies, available seats, etc. I can't imagine in 5 years (or 3 months for that matter) the GoC, as a 20% owner and loan holder, ordering AC to, say, have a YTS-YVR direct because some backbench MP was promoted to Minister of Transport..
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Old Apr 13, 2021, 12:49 pm
  #112  
 
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Originally Posted by AC7E7
I was not a fan of government ownership of GM Canada, and I am very concerned about government ownership of AC.
How much influence will the government have going forward? I am not talking about a board seat. If AC wants to cancel or cut back flights to a city, will the government force them to keep money-losing routes in place? This is unacceptable.

I do believe the government needed to get involved as this was their doing. They are the ones that restricted travel, and should be compensating companies for these decisions. However, I am disappointed Air Canada agreed to a government equity stake. I am considering moving my business to Westjet if their agreement does not include an equity stake.

As a shareholder, I am happy the shares have not tanked as I suspected they would in my earlier post. However, I am considering selling my shares. I don't believe the government can keep their nose out of their operations.
To each their own, but I suspect that in the long run most people will be a lot happier if they keep their investment decision making process and airline patronage decisions somewhat separate. I mean, some of your questions have already been answered - they are being required to restart (in some fashion) those cancelled routes, so apparently that's unacceptable to you? That's a perfectly fair opinion to have, but as others in the thread have noted, it's unlikely that government will "keep their noses" out of the airline industry over the next few years.

If AC is the best carrier for me, I will continue using them. If not, I'll switch, but I won't make that call based solely on who holds voting rights for the shares.
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Old Apr 13, 2021, 3:04 pm
  #113  
 
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Originally Posted by bid.shader
I mean, some of your questions have already been answered - they are being required to restart (in some fashion) those cancelled routes, so apparently that's unacceptable to you?
If the route is not profitable, then the airline should not be flying it (unless it funnels a sufficient number passengers to profitable routes). If the gov't wants to subsidize a flight in order to maintain air service to a smaller community, then go ahead. But taking an ownership stake in the company and mandating that the airline must fly to smaller communities at a loss is something very different.

Originally Posted by bid.shader
If AC is the best carrier for me, I will continue using them. If not, I'll switch, but I won't make that call based solely on who holds voting rights for the shares.
As a shareholder, I would be very concerned about how much influence the government will have on the airline's operations. For example:
- How will this impact future labour negotiations with unions? Union leaders will cry to one of AC's largest shareholders (the government) if negotiations are not going their way. Will the government 'force' AC to pay higher than market wages?
- If a mayor complains that their city/town is not getting enough flights from Air Canada, will the government force AC to add flights - even if they are not profitable? If AC concedes to political pressure, how many other mayors will want their piece of the action?
- Even though the gov't has only a 6-10% ownership stake, will their influence be enough to consider them a crown corporation again?

As a customer, I am concerned that government influence will eventually impact customer service, and make AC a shell of what it is today. Gov'ts are notorious for giving into union demands. What will get cut if this happens at AC? Despite what the government will have you believe, money doesn't grow on trees.

As a competitor to Air Canada, Westjet, should be very concerned about the gov't's stake in AC. Will AC be favoured over WS? Or will it be the other way around? Will the gov't use it's influence over AC to help Westjet (i.e. approvals for certain international destinations), or force AC to stop serving a destination in favour of Westjet?

As you can already tell, I believe in the free market. I also believe the gov't must play a role helping companies that have been directly impacted by their decision to shut the economy down. However, I believe an ownership stake should have been avoided. It makes me wonder if Calin knew it could not be avoided, and jumped ship.

Either way, I feel AC gave up too much. I'm sure they could have survived on their own with a smaller bailout package. There are other ways the feds could have helped all airlines equally, such as lower airport rents (and lower landing fees), lower air traffic control fees, cut the carbon tax on fuel, etc.

To me, this just ushers in the return to the old Air Canada (MapleFlot).
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Old Apr 13, 2021, 5:00 pm
  #114  
 
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Originally Posted by AC7E7
Either way, I feel AC gave up too much. I'm sure they could have survived on their own with a smaller bailout package. There are other ways the feds could have helped all airlines equally, such as lower airport rents (and lower landing fees), lower air traffic control fees, cut the carbon tax on fuel, etc.

To me, this just ushers in the return to the old Air Canada (MapleFlot).
Everything you said is a good argument against government ownership stakes in private businesses that carry governance rights (I agree with you!), but my point was only that the investment decision should be made independently from the patronage decision.

Having said that, the statement that AC could have survived on a smaller bailout package isn't really important. While it's possible that the government showed AC a menu of bailout options from small to extra large, I highly doubt it - it's very likely this was the only option. In all cases when you take government aid, there's likely to be some distasteful component to you, but if you believe it's in your best interest on balance, you do it. Clearly, AC management thought it was in their best interest to do so. The only other explanation is that the government made them take it, and if that's the case, then all arguments about this bailout package instituting some new form of government interference in private markets appear off the mark...
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Old Apr 13, 2021, 8:45 pm
  #115  
 
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G&M article What does Air Canada’s deal with Ottawa mean for taxpayers? - The Globe and Mail
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Old Apr 13, 2021, 9:49 pm
  #116  
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Last edited by 24left; Apr 13, 2021 at 10:56 pm
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Old Jun 1, 2021, 7:04 am
  #117  
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AC paid $10M in COVID-19 bonuses to top execs

https://globalnews.ca/news/7909607/a...-exec-bonuses/

Air Canada paid its top executives and managers a combined $10 million in bonuses tied to the COVID-19 pandemic late last year, despite the airline losing billions of dollars and cutting thousands of jobs in 2020.

The bonuses, which were outlined in the airline’s annual proxy circular to shareholders, came with special stock rewards that were meant to compensate those executives for salary cuts they took as the pandemic wreaked havoc on the travel industry. Yet they also came as Air Canada was negotiating a multibillion-dollar rescue package with the federal government — one that caps future executive compensation.

The airline justified the bonuses and stock awards to shareholders by saying the senior executive team “reacted urgently, decisively and skillfully to mitigate the impact of the COVID-19 pandemic on the company.”
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Old Jun 1, 2021, 8:28 am
  #118  
 
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Originally Posted by tcook052
The airline justified the bonuses and stock awards to shareholders by saying the senior executive team “reacted urgently, decisively and skillfully to mitigate the impact of the COVID-19 pandemic on the company.”
I would have thought that acting "urgently and decisively" to threats to the company was the job definition of a top executive, not something to get a bonus for.
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Old Jun 1, 2021, 9:27 am
  #119  
 
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Originally Posted by Jagboi
I would have thought that acting "urgently and decisively" to threats to the company was the job definition of a top executive, not something to get a bonus for.
It’s always a curious one. The justification might be that they had to manage a massive posture shift with fewer resources (on account of lay offs) - i.e. sort out the mess with less.

The flip side is that they kept their jobs, and if they hadn’t laid off (some of their) employees, they would have had more resources and would have consequently had to expend less effort.

Guess the bottom line is: would they have been better off spending those $XX million on keeping more staff employed; or, rewarding the select few for what was undoubtedly a difficult initial couple of months for those lucky enough to keep their jobs.

But then again, I suppose one’s view depends on whether one thinks holding down one’s job might well be reward enough in these trying economic situations. I suspect that qualifies as an “entitlement” issue which, I understand from certain airline folk justifying overpriced budget products, is a common theme in Canada.
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Old Jun 2, 2021, 8:34 am
  #120  
 
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Originally Posted by tcook052
Air Canada paid its top executives and managers a combined $10 million in bonuses tied to the COVID-19 pandemic late last year, despite the airline losing billions of dollars and cutting thousands of jobs in 2020.
Air Canada 's upper management remain completely and utterly blind to the very concept of optics. Honestly ... how people at such a level could still be so utterly dense is beyond me.

Last edited by Adam Smith; Jun 2, 2021 at 9:07 am Reason: Fixed quote
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